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The Appellate Division, affirming a trial court's decision, has ruled that an insurance company had no duty to defend its insured in a lawsuit alleging that it damaged more than $4 million worth of opals while trying to open a safe that was in its care, custody, and control.

The Case

Companion Trading Company purchased a safe from Mega Security Corporation for the storage of valuables, including semi-precious stones.

When Companion was unable to unlock the safe, it contacted Mega. Mega sent a technician to Companion's place of business in New York, where the safe was kept. The technician was unable to access the safe at Companion's facility.

The technician, in conjunction with Mega's management, decided the safe needed to be transported to Mega's warehouse in New Jersey. Mega arranged to transport the safe to its warehouse and Mega took possession of the safe and its contents pursuant to a formal bill of lading printed on Mega letterhead.

Companion paid Mega $2,500 to transport the safe from its place of business in New York to Mega's warehouse in New Jersey.

Mega spent several days attempting to open the safe. Mega hired an independent contractor, Charles DeBellis, to assist it in unlocking the safe. Mr. DeBellis, working with Mega employees, opened the safe using a blow torch. The safe never left Mega's warehouse during the five or six days it took to unlock the safe, and, at all times, Mr. DeBellis was supervised by Mega employees.

After Mega employees returned the unlocked safe and its contents to Companion, Companion alleged that over $4 million worth of opals had been damaged during Mega's efforts to open the safe.

Companion sued Mega, alleging breach of bailment, negligence, and breach of contract.

Mega sought a defense from Harleysville Insurance Company of New Jersey, from which it had acquired a commercial insurance policy and an umbrella insurance policy.

Harleysville asked a New Jersey trial court to declare that it had no duty to defend or indemnify Mega. Harleysville contended that the insurance policies it issued to Mega excluded coverage for damage to property in Mega's care, custody, and control and, therefore, that it owed no duty to Mega.

The trial court granted summary judgment in favor of Harleysville, and Companion appealed. It argued that the trial court had erred in applying the “care, custody and control” exclusion in the insurance policies that had been issued to Mega.

The Court's Decision

The appellate court affirmed.

In its decision, the appellate court found that the safe had been transported by Mega to its place of business; that Companion had ceded the care, custody, and control of the safe and its contents to Mega for the five or six days the safe remained in Mega's warehouse; and that the opals allegedly had been damaged while the safe was in Mega's possession, at Mega's warehouse, and during the period that Mega employees and an independent contractor had worked to open the safe.

In the appellate court's view, Mega's use of an independent contractor to aid Mega in its quest to access the safe did not change the “care, custody and control” analysis. The appellate court noted that Mega supervised the work performed by the independent contractor, and that Mega employees were present at all times and assisted with the opening of the safe.

Accordingly, the appellate court concluded that the safe was in the “care, custody or control” of Mega within the meaning of the exclusions in its insurance policies and, therefore, that there was no coverage for Companion's claims against Mega.

The case is Harleysville Ins. Co. v. Mega Security Corp., No. A-3551-17T1 (N.J. App. Div. April 8, 2019). Attorneys involved include: Graff Silverstein, LLP, attorneys for appellant (David Graff, on the brief); Riker Danzig Scherer Hyland & Perretti, LLP, attorneys for respondent (Lance J. Kalik, of counsel and on the brief; Margriet A. Schaberg, on the brief).

Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. Mr. Meyerowitz is the Director of the Insurance Coverage Law Center and editor-in-chief of journals on insurance law, banking law, bankruptcy law, energy law, government contracting law, and privacy and cybersecurity law, among other subjects. He may be contacted at [email protected].